RiskReversal with Dan Nathan @dannathan - Tumblr Blog

Apple is Setting its Sites on its Carrier Pigenons

While most of the tech and finance world spent the last 24 hours deciding which Apple iThingy introduced yesterday was the shiniest, the WSJ’s went with this lead tech story:

Why is AAPL taking aim at wireless carriers in the U.S.? Aside from increasing smartphone saturation rates in developed markets, and less differentiation and innovation on the devices, I think this stat from the article says it all:

The average upgrade time in the U.S. has risen from 18.2 months in 2010 to an estimated 26.3 months in 2015, according to data from telecom consultant Chetan Sharma.

The combination of fewer technological advances spurring upgrades, and fewer first time smartphone buyers could be a problem for the profit leader in the space. AAPL’s average selling price for iPhone’s in the June quarter were almost $400 above the average for Android (dominant market-share leader) phones globally. What’s clear is that AAPL dominates the premium smartphone category (estimates range from 50 – 70% market-share above $500 asp smartphones). I suspect AAPL’s move to break the wireless carriers hold on customers has been a long time coming, but I also suspect that the timing is crucial as AAPL’s future growth around the world may be less dependent on higher end smartphone buyers and their ability to own their customer in countries where a new iPhone 6s/6s+ is not upwards of 15% of annual household income. Last month in a post titled Blind Faith in Your Leaders… Will Get You Killed – $AAPL I had the following to say on this topic relating to Tim Cook’s email to Jim Cramer on sales in China:

As for Apple, Tim Cook is echoing what he has said on the last few conference calls, and the emerging middle class trends he refers to will continue for years. But in the near term, remember that we are at a critical moment in China. I am hard-pressed to think all of the fiscal and monetary policy that the PBOC is throwing at their economy is so their citizens can spend13.8% of their annual household income on a freaking iPhone (vs 1.6% in the U.S.), from BGR.com:

Last October I wrote a post titled Subsidies and Mirrors – $T $AAPL where I took a look at the teardown of AAPL’s iPhone and iPad’s, the cost to make the devices and retail pricing. What you find makes little sense, except for the inclusion of wireless carriers to the equation:

Is the conclusion that the much smaller, less resource intensive iPhone is more complicated to manufacture? But considering how many more iPhones sold than iPads (39.3 million vs 12.3 million in fiscal Q4), it is safe to assume that Apple gets much greater economies of scale on iPhone. Teardown of iPhone 6 Plus places costs for 64 gb model likely around $250 (here), while last year’s iPad Air showed cost to build of about $300 (here).

I guess my conclusion is simple – if consumers are no longer going to get ripped off by Wireless Carriers’ ridiculous pricing plans for hardware, then consumers are not likely to upgrade every two years if they are expected to pay $700 to $900 for the new hot iPhone. Either that, or the pricing is going to have to come down substantially to encourage this behavior. Or the business model will be unrecognizable from what we now know.

The last part is really important. We are about to enter an age where consumers may be faced with sticker shock on the price of a smartphone, which is why the carriers and AAPL would rather have you think of the monthly cost to finance the purchase. This battle between AAPL and the wireless carriers is one for the ages but has been brewing since 2006. Consumers will ultimately benefit from this competition at a time when access to the network is no longer the premium service as date rates are crashing, and low cost providers like T-Mobile have been very disruptive. If AAPL can figure out how to get their customers to upgrade their phones every year, like many do with iPads, and had done with iPods, then there will be a certain amount of profitability they should be willing to do without. This is not lost on the peeps in Cupertino. Yesterday’s pricing for new iPhones highlighted just how important it is for the company to hold onto what ever margin they can on the device, that accounts for two thirds of their sales. For the third year in a row the lowest storage capacity for a new iPhone was 16 gb for $199 (with a 2 year contract, $650 without). AAPL has done away with the 32 gb $299 option and gone straight to 64 gb at that price point the last two years. Why? AAPL knows that the masses will go for the lowest capacity cheaper phone, so why give them an extra 16 geebees?

So what’s the conclusion? Not a ton from an investment standpoint. From a consumer’s perspective this will be good, more choice of how to buy your phone, in both frequency and financing, which will ultimately speed the decline of wireless pricing plans as carriers will need to continue to fiercely compete for customers who no longer rely on the phone subsidy.

For those considering a new long in AAPL, or possibly replacing an existing long stock position into the company’s fiscal Q4 earnings event (expected the week of October 20th) yesterday we are detailed an options strategy that we feel offers an optimal risk reward to owning stock at current levels (Name That Trade – Bobbing for $AAPL).

This post from Dan Nathan was posted earlier on RiskReversal.com

#$AAPL #$GOOGL #$T #$VZ

Warning Bells Scream in Silence

This post by Dan Nathan originally appeared on RiskReversal.com:

As a part-time financial pundit, I have so much to say, and usually such little incentive to say it outside of the pages of RiskReversal and the TickerDistrict. For the most part, viewers of CNBC and peeps on the Twitter want to hear the sort of commentary that makes them feel comfortable about the risk assets they own. The chorus of unoriginal voices, who have been right on direction (at least for stocks) for years are starting to lose a little bit of their mojo, with fewer and fewer bullish theses backed by evidence of the sorts of things that should help drive the value of risk assets higher. You know the old saying, that which can be asserted without evidence, can be dismissed without evidence. The more I listen to financial pundits in 2015, the more frequently this phrase is echoed in my head. That’s kind of here nor there as the burden of proof will always lie with those calling for a correction.

Regular readers know that I have a tendency to get a tad verbose in this space, particularly when it comes to challenging the conventional wisdom in the markets. Before I lay into what I feel is an overwhelmingly complacent environment towards invest-able risk assets, in the face of no shortage of warning signs, let’s review one very important concept; that 95% of the people and institutions that you look to in a effort to formulate your investment outlook are massively conflicted by the fact that they or the institutions that they are employed by, do the best when risk asset prices go up. Plain and simple. Yeah, yeah, over time most risk assets spend most of their time in an upward trajectory, but I would argue that the mistakes investors make in and around inflection points are the ones that put in them in the hole (buying tops and selling bottoms) in a manner that it becomes hard to work out of once a bull market is re-enlisted. Oh and there is one small problem about that buying tops and selling bottoms thingy, no one rings the bell at those levels.

For the better part of 2015 I have been fairly steadfast that warning bells are ringing all around us, and the complacency exhibited by investors in U.S. risk assets has now been manifested in a fairly lazy range-bound equity market that seems programmed to trade within a 4% range in the S&P 500 (SPX – 2050 to 2140).

SPX 1yr chart from Bloomberg

At this stage of the bull market and global recovery, after 7 years of unprecedented monetary and fiscal easing the world over, the global economy appears weak at best. As for the evidence, there is no shortage in the financial press on a daily basis:

Europe: Weak eurozone data underline fragile recovery from FT.com 8/14/15

Brazil: Brazil’s Political Crisis Puts the Entire Economy on Hold from Bloomberg 8/17/15

China: China Turned to Risky Devaluation as Export Machine Stalled from NYT 8/171/5

Russia: Russia struggles to shrug off China slowdown from FT.com 8/17/15

U.S.: US economic growth gauge takes a tumble from CNBC.com

Some would add that this all known, and incorporated into the current prices of risk assets. And I would say it is here in the price of crude oil:

Crude Oil 7 year chart from Bloomberg

or here in the yield on the 10 year U.S. Treasury:

10 year chart of yield on U.S. Treasury Yield from Bloomberg

Or here in the price of copper:

10 year copper chart from Bloomberg

No shortage of pundits have dismissed the volatility in Chinese equities, but it seems obvious to me that the Shanghai Composite will ultimately crash under its own weight and that the recent bout of intervention will only exacerbate the problems, 3000 is coming to a theater near you, and who knows where from there:

Shanghai Comp 10 year chart from Bloomberg

Its easy to dismiss all of these external factors when looking at our S&P500, and its easy to join the NBD (no big deal) club when considering our multi-nationals exposure to emerging markets, but make no mistake, there are no shortage of external factors that are screaming warning-signs for our late stage bull market in stocks. Oh and your favorite Fed Whisperer from the WSJ John Hilsenrath stated it loud and clear in this morning’s edition that the Fed may have exhausted its bag of tricks: U.S. Lacks Ammo for Next Economic Crisis

So back to incentives about sounding cautious about the current investment environment. You will most definitely continue to listen to the chorus of conflicted perma-bulls, they will remain so all the way through the next correction or crash, or you can take a few minutes here and there to contemplate what the potential holes are in the bullish arguments that are so pervasive in the financial media.

MorningWord 8/17/15: Have You Tried the Buffett? – $IBM, $BRKB (1)

MorningWord 8/14/15: $TWTR – Testifying Against Bird (1)

MorningWord 8/13/15: China Syndrome $AAPL (1)

#$SPY #$ASHR #$FXI #$USO

Don’t forget what you are celebrating

Dazed and Confused is one of my favorite movies of the 1990s. At the time, it didn’t find a big audience outside of high school and college kids, but has since become a cult classic, especially amongst Gen Xers. And it launched the careers of Matthew McConaughey and Ben Affleck. Just Google it kids.

While the movie is massively quotable, one line popped into my head this morning as I watched the S&P 500 futures rally on disappointing jobs data. It’s when the hot hippie teacher issues a warning to her students before schools out for the summer:

“don’t forget what you are celebrating....”

I’ll just leave it for this before we sign off for the July 4th holiday. With the market still near all time highs you should only be buying stocks or equity index etfs/futures because you believe the U.S. economy and corporate profits will soon break out from the slow growth that we’ve seen throughout most of the recovery. If you are buying because you think you have a few extra months of ZIRP, then you aren’t really investing, you’re playing musical chairs and assuming you’ll find a seat when the music stops. It’s entirely possible the Fed is unable to exit ZIRP at a perceived opportune time, and will have to do so in a mediocre economy. If those are the conditions you want to be in while committing new capital to stocks near highs, then good luck with that.

Riding the Fed’s coattails is getting a little long in the tooth. This is kind of evident with the equity returns we’ve seen year to date. Don’t Fight the Fedworks both ways. Everyone knows it’s coming, a few extra months no longer matter. For stocks to go higher from here we need to see good economic data. Really good.

When buying stocks on bad economic data points because of the Fed, don’t forget what you are celebrating.

Oh and have a great July 4th Holiday, we will be back Monday.

MorningWord 7/1/15: Heavy Lifters $SPY $QQQ (1)

MorningWord 6/30/15: Another $AAPL Turnover (1)

Big Printin’ 6/29/15: $AAL, $SPY, $XLU (1)

This post by Dan Nathan (@riskreversal) originally appeared on RiskReversal.com and TickerDistrict.com

#$SPY #$QQQ

Too Big to Fail vs Too Small to Care

Today was one of those days where everyone with a Twitter or Facebook login gets to offer an opinion on Greece. The financial news sharing economy is full tilt and it’s dizzying. I would guess that most of what you have read this weekend is not likely to help you make money (or lose less). So my advice is to stick to the stalwarts like @elerianm and @NYTimeskrugman.And while you don’t have to agree with his politics, Paul Krugman has a very good track record on these specific macro issues. (his Japan-like liquidity trap/deflation predictions after the financial crisis were spot on compared to most of the bond vigilante/inflation scare mongering that dominated financial media) One quote on his NYT.com blog is at the heart of what we’re seeing this morning:

The troika clearly did a reverse Corleone — they made Tsipras an offer he can’t accept

I wonder if a week from now the Troika is doing a sort of end around Corleone:

Brian Kelly made this same point last night on our sister site The Ticker District.

Who knows what’s gonna happen, and frankly it seems that few investors here in the U.S. were positioning for unexpected adverse effects of a messy Greek default as the S&P 500 was within 2% of its recent all time highs, the VIX within a few handles of its all time lows, and Treasury yields levitating near 2015 highs as if they hadn’t had a care in the world. I suspect the off-footing pushes out the anticipated and eventual V reversal from what ever damage is caused. But make no mistake, what’s different this time is investor complacency.

I would also add that since I have been in the business there have been two massive stock market crashes, the dot com bubble burst in 2000 and the financial crisis in 2008, both of which caused peak to trough declines in the S&P500. It strikes me as odd that this week we have smatterings of both in the global markets, with fear of some sort of credit contagion in Europe and the cooling of an obvious over exuberant equity bubble in the worlds second largest stock market, China.

Brian Kelly has a great post this morning at The Ticker District wondering if the Puerto Rico news dump last night is the sign of things to come as countries see their potential window tonegotiating a decent deal to get out of their debt problems as fleetingly short:

Puerto Rico executed the mother of all news dumps on Sunday night. For GRisk/PRisk Off to become systematic the market must decide whether or not this is the beginning of a larger breakdown of the global Prisoner’s Dilemma. In this case the Prisoner’s Dilemma is if they all keep their mouth shut, investors keep buying their debt. On the other hand, the first few to confess may be able to negotiate a deal.

If Steven King was sitting down to pen a financial horror show, the situation in Greece, the more than 20% decline from the highs in Shanghai, the widespread economic malaise in other emerging markets like Brazil and Russia, a U.S. Fed ready to end a 7 year ZIRP and the obvious complacency of Western investors has all the trappings of a masterpiece.

Over the past few years, in situations like this, we’ve seen the buy the dip crowd step in and be right. The reason they’ve been right is that there’s been so much at stake (everything is too big to fail) it made sense to bet on a deal happening or a central bank stepping in each time. (think of U.S. debt ceiling deals, any big moment for the ECB, the Fed keeping ZIRP at the slightest sign of a weak recovery, Japan, China, you get the point).

And recently we’ve even seen a second excuse for complacency and that’s “Greece is small, it doesn’t matter.” But those two sentiments are actually in conflict with eachother. The “it’s too big a deal will get done” and “it’s so small who cares” can’t both be right.

This weekend brought one of the more interesting plot twists we’ve seen in some time.

Big Printin’ 6/29/15: $AAL, $SPY, $XLU (1)

Big Printin’ 6/26/15: $ASHR, $BHI, $MU (1)

MorningWord 6/26/15: Lose Lose Choices Abound $NKE $SPY (1)

This post by Dan Nathan (@riskreversal) originally appeared on RiskReversal.com and TickerDistrict.com

#$SPY #$QQQ #$FEZ #$UUP #$FXE

A Stock Market Full of Lose-Lose Choices

If you are looking at the recent new all time highs in Disney (DIS), Facebook (FB), Nike (NKE), Starbucks (SBUX) and of course Apple’s (AAPL) 15.5% year to date gains to glean the health of the U.S. economy (and most importantly the U.S. consumer) and surmise that U.S. stocks are in a good spot then you may be focused on the wrong group. Last Fall I dubbed this a portfolio of U.S. Consumer Teflong™ stocks and suggested that this group would likely be the last battle fought of this epic nearly seven year bull market.

In early May I took another look at this group (read here) and noted that all of these stocks had been trading at highs into their Q1 reports in March/April, and all had given back their earnings gains, and failed to hold the breakouts to new highs. That was obviously a fairly premature observation as all but AAPL have made new highs since, but I would add that the failure of the S&P500 (SPX) to follow suit and establish a new range above the prior highs could be a demonstration of exhaustion.

My main takeaway at the moment is simple. This is a very special group of stocks that reflect the health of the high-end consumer and an increasingly aspirational lower/middle class consumer, at least for certain brands and services. But if you want to look at the nuts and bolts of our economy then the performance of cyclical stocks that could be anticipating the “slack” in the U.S. economy (that the Fed has referred to) should be acting a lot better.

I am not even gonna get into the disaster that is the Transports (read our ongoing debate at the TickerDistrict.com), but Industrial stocks like CAT, CMI, JOY, NAV, UTX act downright awful. Autos, stuck in the mud despite registering new monthly sales records all year. Aside from the dollar stores and the recent bout of merger mania, mid range retail is losing two horses of the bull market COST and WMT, down 12% and 20% respectively from their 52 week and all time highs made earlier in the year, and I am not going to get into teen apparel (all they want to do is Snapchat). Utilities are a disaster, but understandable given the move in rates, Commodities/Energy/Materials, ugh. Two of the largest stocks in our markets CVX and XOM are making new 52 week lows. Banks act well but may have pulled forward some performance. Agriculture stocks, yuck, have you seen MON and POT lately?? Consumer Staples, nasty (PG, KO, MO).

You say Healthcare stocks are blowing the doors off? Well, the merger mania in big pharma and hospital stocks isn’t healthy. We will look back and remember these mergers as a sign of a top. And lastly Technology, the largest weighted sector in the SPX. The recent weak results from JBL, ORCL and now MU paint a blah picture for PC and Smartphone demand in the second half of 2015.

Frankly, I just don’t see the value proposition to committing new money to equities before we get some sort of re-set. I have said that all year. And frankly, unless you are in loaded up on the most beloved U.S. consumers stocks then it has been a tough year to outperform. Of course, all of that could be easy if the entire market became a bubble like the late 90’s. But that’s not what we’re seeing now. We’re seeing some bubble like sectors and others that are signaling weakness.

I’ll leave you with this, a Tweet this morning from Jim Cramer in response to a viewer question ‘is it too late to join the NKE party?”

This is the sort of equity market we are in, with plenty of lose-lose choices.

MorningWord 6/25/15: Get on with it already – $XLI, $IYT, $XHB (1)

Big Printin’ – 6/24/15: $BAC, $EBAY, $EEM, $FB (1)

MorningWord 6/24/15: Carbo Loading – $CRR (1)

This post by Dan Nathan (@riskreversal) originally appeared on RiskReversal.com and TickerDistrict.com

#$SPY #$NKE #$AAPL #$DIS #$FB

Is Apple Dead Money?

On this Friday’s Fast Money program on CNBC, Tim Seymour answered viewer question with his thoughts on Apple (AAPL). I rudely interrupted Tim almost right off the bat when he mentioned valuation as the first justification to own the shares. Watch here.

Tim has been long the stock for months, if not quarters, and has been right on the story, and obviously the stock. I guess where Tim and I disagree is that cheap valuation as the intial input to continue to justify holding the stock (I am sure he has other reasons). AAPL currently trades well below a market multiple at 14x expected 2015 earnings, excluding $194 billion in cash on the balance sheet (26% of their $732 billion market cap, 20% net of $44 billion in debt), AAPL trades a little less than 11x. I am not going to use this post to debate whether or not the stock deserves to trade at a discount, or why it does. But it does.

The point I was making in the clip above is simple. AAPL has seen a massive acceleration in earnings and sales with the launch of their larger iPhones last fall. In the current fiscal year, AAPL’s earnings are expected to grow 40% year over year, on 27% sales growth to $232 billion!! Next year as the iPhone 6 upgrade cycle moderates Wall Street analysts have modeled for earnings and sales growth to also moderate to about 7% year over year. So if the stock was trading well below a market multiple in a hyper growth phase, I am not sure why one would expect to see multiple expansion in a period of decelerating growth?

There is definitely the possibility that Wall Street consensus is too conservative for fiscal 2016 estimates, with few expecting large contributions from Watch, Pay and their impending Music launch, but I suspect that is for good reason, they are not likely to move the needle individually next year, or for that matter combined. Apple is the iPhone company getting more than 70% of their annual sales from iOS devices. Could growth in regions like China outperform and offer unforeseen upside? Sure, but I suspect that is one potential outcome that consensus estimates incorporate.

In my mind one of the main risks to owning AAPL here is the potential for growth in China to moderate, the flattening out of the iPhone upgrade cycle, disappointment on new products not filling in the cracks, which could lead to a massive sentiment shift from a fairly universal bullishness, similar to the turn following the launch of the iPhone 5 in September 2012, their last intro of new larger phones. I would also add that while the iPhone 6 numbers have been HUGE, the pent up demand had little to do with some new-fangled technology, but merely larger device sizes, and broader geographic distribution. I suspect the launch of the iPhone 6s in the fall should have less of an impact on consumer purchasing decisions.

Taking a quick look back, AAPL saw earnings grow 60% in fiscal 2012, with 45% sales growth. In fiscal 2013 earnings declined 10% year over year, on 9% sales growth, as gross margins declined 6% from their fiscal 2012 peak, and the stock declined 45% peak to trough (Sept 2012 to June 2013). Since those lows two years ago, AAPL has rallied 125%, but gross margins have remained below the peak, expected to be 40% this year.

So what will fiscal 2016 bring for AAPL?

I suspect analysts have it right with significantly moderating growth. So unless you know something that I don’t, which could only be a new blockbuster product out of Cupertino, or a path to higher margins, I am not sure why it makes any sense to expect multiple expansion in one of the most widely loved stocks, and the largest market value the world has ever seen.

Oh, and on purely a technical basis, the stock is having a hard time establishing new highs, holding on for dear life to its 2% Q2 to date gains, with $120 a logical technical support level:

AAPL 1yr chart from Bloomberg

Most of the stock’s 15% ytd gains obviously came in Q1, and I guess what’s important to note is what appears to be waning momentum, the stock’s inability to confirm multiple new highs in the S&P 500 and the Nasdaq Composite, each of which it is the largest single component. All that said, the stock is fine (for now) in my mind, as long as it holds the uptrend that has been in place since last April:

AAPL 2yr chart from Bloomberg

So from where I sit, valuation should not be the main reason to own AAPL. Map out how growth can re-accelerate, and profitability remain stable/increase. Yeah, yeah, they buyback their stock hand over fist, and iOS market share is stable, but as interest rates rise their cost to fund buybacks/dividends will also increase as most of their cash is overseas. I think it is safe to say that the stock is far from a No-Brainer at current levels, based on what we know about current products and their runway. It may not be a short here but it could be dead money for the time being.

DISCLOSURE: I have no position in AAPL stock or options. I am long 2 dozen Apple products accumulated over the last 5 years (business and personal), and a very happy customer.

This post by Dan Nathan (@riskreversal) originally appeared on RiskReversal.com & TickerDistrict.com

#$AAPL

China Equity Bubble

The peeps who run Bloomberg’s social media like this article on Chinese equities so much they seem to be running a contest to see which title gets the most play on Twitter.

It looks like this morning’s (the second one) is getting more action than yesterday’s version. I can’t wait to see how they phrase it tomorrow.

I don’t mean to pick on them, the article is a very good summary of the issues facing China. And there’s some worthwhile commentary by market participants in the region. But there’s nothing particularly new here.

China’s equity rally in the last year has caught a good bit of attention in the U.S. as it represents the sort of exuberance that many pundits would love to attach to our equity markets, but have been unable to do aside from some small pockets. I have made the argument on many occasions in this space that the bubble as it relates to equities is not valuation, or price action, but merely in complacency. Investors have shown little fear of late of the potential for a correction, and certainly few expectations for a crash like 2000 or 2008 in the offing. As for China, the Shanghai Shenzhen CSI 300 Index, as Bloomberg describes:

The CSI 300 Index is a free-float weighted index that consists of 300 A-share stocks listed on the Shanghai or Shenzhen Stock Exchanges. Index has a base level of 1000 on 12/31/2004.

The CSI 300 is up 125% year to date, 47% from its 200 day moving average at 3500, a level the index consolidated in and around for the better part of the first quarter before taking off on its parabolic run in Q2:

CSI 300 Index 1yr chart from Bloomberg

Recently I have become aware of surging open interest in Deutsche X-Trackers Harvest CSI A-shares etf (ticker: ASHR) which tracks the CSI 300, from Bloomberg:

Open interest is fairly evenly split between calls and puts at 209,000 vs 214,000 respectively. But call volume over the last month has been 1.5x that of puts with the three largest strikes of open interest, all calls in July with 17,500 of the July 55 calls, 15,000 July 60 calls and 14,800 of the July 65 calls. Monitoring options open interest can tell you little if anything about the future direction of the underlying, but a build up in open interest in what appears to be untied purchases or sales can certainty serve as a useful input when considering investor sentiment. I bring up the ASHR as I, like most U.S. investors / traders have found the correlation of the IShares China Large Cap etf (FXI) made up of H-Shares listed in Hong Kong to not capture the euphoria that has taken place in the recent mainland equity mania.

ASHR could be the exact vehicle to trade for those who want to play for a further expansion of the bubble, or for those looking for it to burst. We are not in the business of shorting bubbles, but options prices in ASHR are not as expensive as one would expect in light of the recent explosion in open interest, as 30 day at the money implied vol (blue below, the price of options) vs 30 day at the money realized vol (white below, how much the underlying has moved) are both about 40%, making options prices look pretty fair:

ASHR 30 day at the money IV (blue) vs 30 day at the money realized vol (white) from Bloomberg

This trading vehicle has caught my eye, we will be sure to look for ways to play at what we perceive to be near term inflection points.

This post by Dan Nathan (@riskreversal) originally appeared on RiskReversal.com and TickerDistrict.com

#$ASHR #$FXI

It’s a Nice Day for a Red Wedding

Last night on CNBC’s Fast Money we discussed the competitive threat that Alibaba (BABA) poses to Netflix (NFLX) in China. Watch here:

I am not going to get too into the opportunity for NFLX abroad, it is obviously immense. But maybe even more than here in the the U.S., the success of the expansion will depend on original content. They seem to be on a roll on that front domestically, but I doubt the content that the company has spent hundreds of millions of dollars producing for U.S. audiences will resonate with other cultures. House of Cards, or Orange is the New Black will not have the same sort of cross cultural appeal as blockbuster action movies like Avengers or Jurassic Park. Cable and Netflix TV is better than Hollywood movies right now and that is due in large part to the need for Hollywood movies to appeal (at a minimum level) to a global audience across multiple cultures. That means sequels, remakes, car chases and stuff going BANG! The sorts of movies that you can understand the plot even if it’s in another language (or the sound is off.) Not what we’ve come to expect from cable and streaming dramas during the golden age of television. So how will Netflix address this difference? Make Hollywood action style shows for global audiences? Or is a Game of Thrones type show the prescription? Either way it’s not their current roster. But I’m sure they’re already thinking about it.

I don’t have anything intelligent to add on the merits of holding onto or committing new capital to NFLX at these levels. All I can say is that the stock’s 100% gains since the lows in January, and 1100% gains since the lows in 2012 might well discount a bit of the enthusiasm about an international expansion, and may not exactly discount the potential for a local behemoth like BABA to become a formidable competitor on their home turf. It is also important to remember that there have been few if any U.S. web based businesses that have been able to compete in a meaningful way in China (AMZN, EBAY, FB, TWTR, YHOO).

But what I do think is worth noting is that one of the kings of original content, Time Warner (TWX), has a $71 billion market cap, about 2.5x expected sales of $28 billion vs NFLX’s $40 billion market cap, almost 6x expected sales of $6.8 billion.

Does that mean a content company like TWX is an attractive buy? They’re only growing sales in the low single digits (obviously off a much larger base.) But they are also expected to register about $4 billion in net income on that $28 billion in sales, vs. NFLX’s $150 million on $6.8 billion that is growing 23% a year.

Comparing the two is like apples to oranges, but I think it is important to remember that TWX’s HBO-Go property, and others like it will be staunch competition in NFLX’s dominant North American market in the very near future as cord cutting becomes a dominant trend and new platforms like the one Apple is working on evolve. If the stock market is a discount mechanism, NFLX share price could be incorporating a lot of future success yet to be achieved. If we were playing would you rather right now, my money would be on TWX.

Based on the piracy rates globally for HBO’s monster hit Game of Thrones, I think its safe to say this is the sort of content that resonates throughout the globe. And it’s not like you can wave a magic wand and have a show like Game of Thrones. If I had to choose between the global appeal of Jon Snow or Frank Underwood it’s Jon Snow (spoiler). If NFLX is unable to produce that kind of content for a global audience then it could mean Winter is Coming. TWX already has a first mover advantage on this sort of content (see NFLX’s Marco Polo if you need further evidence).

MorningWord 6/15/15: Fugazi. It’s a wazy. It’s a woozie. It’s fairy dust. $FB (1)

MorningWord 6/12/15: ($TWTR) – Subtweet (1)

MorningWord 6/11/15: Europe – The Final Countdown $FEZ (1)

This post by Dan Nathan (@riskreversal) originally appeared onRiskReversal.com and TickerDistrict.com

#$NFLX #$BABA #$TWX

Fugazi, Fugazi, It's a wazy. It's a woozie. It's fairy dust.

On Twitter last night I got a question regarding a protective collar on shares of Facebook that I detailed on the site (here) and on Friday's Options Action on CNBC (watch here):

We now live in an investment landscape where unicorns are quite common. In 2012 when $FB paid $1 billion for Instagram most (including myself) thought it was nuts to pay that much for a company that had not registered a dollar in sales. In hindsight that was a brilliant move. Especially when you consider the trajectory of private tech valuations since then. That trajectory means the term unicorn is being thrown around so much that it may need to be changed.

The speed in which tech startups are valued at $1 billion (great Unicorn primer from TechCrunch from 2013- Welcome To The Unicorn Club) is truly mind boggling now. Some see the ease in which capital is being thrown at these start-ups as a sign of a coming Tech-pocalypse. That's probably true and it will be fairly easy to look back at this period as one of excess. But obviously without a crystal ball we have no idea how silly things will get first nor when it will end.

If analysts want to throw around $35 billion valuations for Instagram, then have a ball. FB is already trading at 13.5x its expected $17 billion in 2015 sales at a whopping $230 billion market cap. Instagram is a great property, and while it might have been a steal at $1 billion, its worth is being measured in users, not revenue dollars with no significant revenues in the near future. But one could argue that within the FB ecosystem it is keeping users in related properties, possibly keeping them from other social networks (like Snapchat.) And that was the true genius of Zuckerberg's vision.

So the benefits have been real with Instagram and the same rationale can be applied to WhatsApp, which came at a slightly higher price tag at $19 billion. Zuckerberg and crew made a fairly important and big bet over the last few years that mobile messaging is the glue to a lot of what they do (similar to the realization that Facebook was essentially a photo sharing service threatened for the first time by Instagram), and they have not been shy to use their available currency to protect their vision of social media's near future.

But assigning financial value to this vision is a much more difficult thing to do for shareholders. At this point, even if WhatsApp's purchase price was suddenly written down to half, it really doesn't matter for investors. But in the near future these so called unicorns that have yet to secure an exit only to see a mark down in their value could signal the beginning of the end.

Last fall there seemed to be a chorus by some of the smartest and most successful tech VCs about cash burn at startups:

WSJ: Venture Capitalist Sounds Alarm on Startup Investing, Silicon Valley Has Taken on Too Much Risk, Gurley Says

Business Insider: New York's No. 1 VC Has An Ominous Warning For The Tech Industry

WSJ: Marc Andreessen’s Warning to Cash-Burning Startups: “Worry”

So when I get asked about valuations of former unicorns, I have no idea. They're worth what people are willing to pay for them at that moment. And that can change on a dime.

Matthew McConaughey's character in The Wolf Of Wall Street hits the nail on the head, suggesting that not he, nor Warren or even Jimmy Buffet knows if a stock is going up, down, or sideways. That's especially true of the hundreds of billions of dollars tied up private market values right now:

Its a Fugazi, Fugazi. It's a wazy. It's a woozie. It's fairy dust.

This post by Dan Nathan (@riskreversal) originally appeared on RiskReversal.com

#$FB #$TWTR #$QQQ

VIX - Do You Realize??

In Case You Missed It, the S&P 500 (SPX) made new all time highs yesterday. Per Bloomberg, 275 stocks in the SPX advanced, while 222 declined, while only 4% are at new 52 week highs, but 65% of the index is trading above its 50 day moving average. To state the obvious, upward momentum has been building, albeit slowly, and almost begrudgingly.

One thing is certain, owning options premium to play for a breakout to new highs has been a painful experience, with ten day realized vol (how much the index has been moving, in white below) once again reaching mid single digits, implying less than 1% movement, which has made options prices (realized vol in blue below) expensive, despite trading new 52 week lows:

SPX 10 day realized vol (white ) vs 30 day at the money implied vol (blue) from Bloomberg

On the flip-side, one supposed piece of options trading wisdom has been to buy protection when you can, not when you need to. Meaning buy it when its cheap, not when it gets bid after a move lower in direction, and up in vol terms. If this bull market has shown us anything that the opposite has actually been true, owners of risk assets looking to frequently buy protection in the form of put premium have seen their returns routinely eroded as declines have been short and sweet. Could this pattern be coming to an end as we get closer to the FOMC raising interest rates? It feels that way as rate have risen of late and almost every other major risk asset in the world has seem some fairly real volatility, commodities, currencies and of course bonds, while the largest equity market on the planet grinds higher with a sort of complacency that has flecks of reckless abandon.

We are not believers of buying options premium just because it is cheap, the math actually speaks to the opposite.

This post by Dan Nathan (@riskreversal) originally appeared on RiskReversal.com

#^VIX $SPX #$SPY #$QQQ

China’s Recovery: That which can be asserted without evidence, can be dismissed without evidence

This post by Dan Nathan (@riskreversal) originally appeared on RiskReversal.com, but the debate among a wide range of market professionals carried on at The Ticker District. Sign up for free early beta access. Follow us on Twitter (@TickerDistrict)

.......

Yesterday in this space (The Year of the PBOC) I discussed the difficulty assessing the health of the Chinese economy for those of us who are not on the ground, and who generally rely on the financial media and pundits to inform our world view:

The point here is simple, sensational headlines about China, its centrally planned economy and whether or not it will cause the world to head back into recession (or lift us back out) is a surefire way to sell newspapers, get viewers and a boatload of clicks. But I suspect most of the opinions are nothing more than a shot in the dark. The situation over there is opaque and decided by a small number of people in a back room.

Good Luck making investment decisions in the U.S. based on what you think is going on in China

Which leads me to a segment that I caught on CNBC.com of Jim Cramer suggesting that China’s economic turnaround is “months, not years away”. Watch here.

Jim highlights several reasonable data points that suggest a turn could be near, and offers some fairly safe ways to play via U.S. multi-nationals that would be levered to China economic reflation. When it comes to Cramer, I think you can throw out all of what you think you know about financial pundits. He is a tried and true market practitioner, puts his money where his mouth is, works twice as hard as most full time professionals I know, has an amazing information pipeline in both media and finance and is extremely thoughtful about what and how he makes predictions. All with the added pressure of knowing there are thousands of viewers/fans who like to replicate his latest picks to click. So when Cramer goes out on a limb like he did last night, I think it is worth taking note.

But here’s the part where I put my contrarian pundit hat on. In Cramer’s clip he mentions companies like BA, CAT, GE, HON & JOY (all save HON) expected to have year over year earnings and sales declines in 2015, all trading above a market multiple. I would say that there stocks right now already reflect optimism of a recovery abroad (most of their future growth is expected to come outside of the U.S.) If China were to turn in the coming months, and the companies listed above were to see a pick up in demand (halting earnings declines) then the stocks will be re-rated. But if China’s growth decline does not reverse in 2015 (despite continued monetary easing) at a time where it looks like the U.S. just posted a negative Q1 GDP print, then these stocks, many which have under-performed the S&P 50 0ver the last year are continually vulnerable.

Again I think you could defer to Cramer, as he does or has owned many of the stocks listed above and likely done dozens if not hundreds of hours of work on them.

But, if it wasn’t Cramer making such an assertion, on such an important topic I would merely quote the atheist socialist scholar, Christopher Hitchens:

That which can be asserted without evidence, can be dismissed without evidence.

Still waiting on that evidence.

#$FXI #$SPY #$QQQ

Slicing Up Apple

I am not going to lie to you, there is very little as it relates to the stock market that I am going to think about between now and Monday at 4:30 pm aside from Apple’s (AAPL) fiscal Q2 results and forward guidance. Regular readers know that I am a huge fan of the company and their products (I probably have 20 of them in my home and business) but I am concerned about the entire global investment community’s love affair with the stock itself. As a part time financial pundit I spend a good bit of time attempting to poke holes in the bull case for the shares. The way I see it, some one has to try it. And while I take heat about playing the bear on AAPL lately from my peers on CNBC, or hate filled tweets from the Peanut Gallery, I can only say, “You’re welcome!”

Here’s why. In what investment universe would you want to be long the most universally loved and widely owned stock, let alone the largest the world has EVER seen and only hear analysts, investors, industry people and pundits sing its praises. You’d be flying blind. As far as I am concerned I can only become very convicted on an investment idea when I have a full understanding of the opposing bull or bear case.

As for earnings, the options market is only implying about a 5% move between now and next Friday (or about $6.70 vs stock ref of ~$130). The average one day move over the last 4 qtrs has been about 4.8%. The implied move looks fair to maybe cheap, but that is also a function of the broad market and the fact that AAPL’s realized volatility (white line below: how much the stock has been moving) is at the lowest levels of 2015, and implied vol (blue below) is well below the levels prior to its Q1 report in January:

AAPL 1yr chart of 30 day at the money implied vol vs realized vol from Bloomberg

Oh and from a technical perspective, the one year chart looks like a launch pad:

AAPL 1yr chart from Bloomberg

I would add one slight note of caution. While I said the implied move looks “fair” it is important to note that the implied move of about 5% is equivalent to about $38 billion in market cap. On January 29th prior to AAPL’s Q1 report, the options market was also implying about 5%, and it bested that by a touch, but the stock has risen 20% since then, gaining more than $120 billion in market cap since. You get the point, the higher the stock goes, the harder it should become for the stock to continue its pace of upward trajectory. Unless the entirety of the investment community is correct and the stock is going to straight to $1 trillion in market value.

We will have a much more in-depth preview on Monday prior to results.

This post by Dan Nathan (@riskreversal) originally appeared on RiskReversal.com

MorningWord 4/23/15: I Remember This One Time… $NFLX $YHOO (1)

Wednesday’s Notable Options Activity: $CSX, $FB, $GOOG, $MCD (1)

MorningWord 4/22/15: Bad News Bulls $SPY (1)

#$AAPL

I Remember This One Time...

Single stock volatility is the headline grabber during earnings season. The potential for an out-sized nearly instantaneous gap in an underlying equity as the result of a single earnings press release can be an irresistible trade set up for those who view the stock market as more of a casino than a conduit for investment. We spend a good bit of time during earnings season trying to line up qualitative and quantitative inputs, and attempt to arrive at an investment/trading conclusion prior to results as to whether or not fundamental expectations line up with the expected movement priced into options prices of the underlying stock.

As traders we seem to have a better memory for stock's like Netflix (NFLX) which rallied 18% last Wednesday following its better than expected subscriber growth vs its implied move of about 9%, as opposed to Yahoo (YHOO) who's shares declined only 1% yesterday following its results. It had an implied move of about 5.5%. The massive outliers are few and far between, but for some reason they hold a very special place in our memory. This is called confirmation bias.

The simple fact of the matter is that if you took a random group of 100 stocks in the S&P 500 (has to be random, you can't feel "drawn" to the names, that's another bias) and sold every implied move (the premium in options of the underlying that exists during an earnings period as opposed to the period where there is no scheduled event) over the course of an earnings period it would be a near certainty that you would make money. We can leave the math to be explain by quants, but we think it is an important message to those looking to to make short term directional long premium bets into earnings. As we often warn, there are a lot of things you need to get right just to break-even, first and foremost direction, timing and magnitude of the move. You'd have better odds of always betting on black.

Which is why in most instances in and around earnings we detail overlay strategies for existing longs. If long holders sold options against their positions routinely during earnings it would also be a near certainty that this would at the very least be a risk mitigating strategy over time with a high likelihood of yield enhancement.

In our view there are three main uses for equity options. Yield enhancement, leverage and risk management. When used in conjunction with an existing stock position we are fairly certain of their value as an overlay strategy, as a directional trading vehicle without a broader context or investment program we are less convinced, but at the very least we find options activity and price changes useful to gauge sentiment. And often when used speculatively or directionally within a defined risk parameter they are much better than trading the equity itself.

This post by Dan Nathan (@riskreversal) originally appeared on RiskReversal.com

#$NFLX #$YHOO ^SPX #$SPY

Miner Threat

At this stage of the game it’s become clear that the rise and fall in commodity prices over the last few years was a direct result central banks’ (primarily our Fed) monetary policies since the financial crisis. While most financial pundits concerned themselves with the brewing bond bubble from QE and ZIRP or silly valuations in social media and 3D printing stocks, the commodity bubble inflated and then popped, and we’ve only felt some of the repercussions.

As we get a read on Q1 earnings, we are just now feeling the affects in corporate earnings. Despite the benefit to companies of lower input costs, or consumers who have more cash in their pockets from paying less at the pump, the S&P 500 could print its first year over year quarterly earnings decline in almost 3 years. This is obviously backward looking. And the S&P 500, at less than 2% from its all time highs, doesn’t seem too bothered, suggesting that a weak Q1 is baked in at this point.

But looking forward a bit, we could be on the cusp of swath of defaults and/or bankruptcies in the commodity/mining complex. Cliff Natural Resources (CLF) an iron and coal miner, caught my eye yesterday as there was some unusual call activity. From Monday’s Notable Post:

when the stock was 4.78 a trader paid .34 for 20,000 July 6 calls, the company is slated to report earnings April 24th. The stock has been banging along multi-year lows for the last month and shockingly down 95% from the all time highs made in 2011, and short interest sits at 52% of the float. As always with unusual options activity, it is impossible to know a trader/investor’s intent of a trade, and while some my consider this call purchase a bullish play but could also be a way to protect a short position.

I think the last point there is an important one. It’s easy to look at this chart knowing that with half the float short, it wouldn’t take much to cause an epic short squeeze. But who knows. Maybe the shorts will continue to be right. And maybe the stock is a zero?

CLF 4yr chart from Bloomberg

The implosion in the commodity bubble has some of the casualties looking like stocks like dotcom bubble implosions like YHOO in the early aughts. YHOO declined 95% from its early 2000 peak to its Oct 2002 low:

YHOO 1998 thru 2002 from Bloomberg

There is one massive difference though. While YHOO’s business model was distressed near its bottom, its balance sheet was just fine. They were not saddled with debt and merely needed to cut costs and refocus. The post apocalyptic plan for commodity companies looks very different, especially if they do not see a pick up in prices and/or demand. If commodity prices don’t rally, CLF’s ability to service its debt could become a challenge as earnings are expected to swing to a loss in 2015, from a peak of $11.86 a share in 2011 and sales expected to be around $3 billion, down from $6.8 billion in 2011. The company has a market cap of $728 million, has $290 million in cash and equivalents and $3 billion in debt.

So when you see unusual call buying in what is becoming an increasingly distressed equity, it may not always be what you think. Morgan Stanley recently lowered their 12 month price target on CLF to $3, and it seems that analysts have abandoned the stock with only 1 buy rating, 9 holds and 10 sells. Here is a situation where sentiment matches the company’s current outlook. This by no means suggests press the short, the situation is a bit asymmetric, which is one reason why the calls that were bought yesterday may be expensive in vol terms, but could prove to be dollar cheap if the stock ever had a reason to rally.

If we were to see further consolidation in oil stocks maybe it could flow over to miners, and put a floor under some of these stocks, but it will also take commodity/demand reflation to keep some of these companies afloat.

Monday’s Notable Options Activity: $BABA, $CLF, $GE, $MSFT, $SPY, $XOM (1)

MorningWord 4/13/15: USA, USA… Use Stops Always (1)

Friday’s Notable Options Activity: $CREE, $DAL, $GE, $VIX, $XLV (1)

#$CLF #$YHOO

Where is My Mind?

Lingering credit and growth issues in Europe and Asia have been the thorn in the U.S. economic recovery's side for the better part of the last few years. As for stocks and bonds here in the U.S. they have paid little mind, aside from a few fits and and starts, equity vol remains very near multi-year lows, and bond yields seem to have a ceiling at 2.5%, priming the pump for what else? More gains. It wasn't until very recently that investor behavior in Europe and Asia (particularly China) have been cause for concern. Last week in this space (MorningWord 3/30/15: Gambling in China) I wrote of the surge in the Shanghai Composite in the last few months that appears to have less to do with economic growth and more to do with investors' appetite for gambling and their ability to play at a new casino:

Here is a chart of Chinese brokerage account openings showing the initial surge when the Connect was put in place in late 2014, and the parabolic move, from FTAlphaville:

Its not just Shanghai, but the newly formed Connect between the mainland and Hong Kong. The breakout in the Hang Seng Index might have been a long time coming, but the reasons for, and the way it has happened in the last couple trading days, to the tune of 11% at its highs, should be very disturbing to rational investors the world over:

Hang Seng 6 year chart from Bloomberg

The guys over at Bespoke are calling the last couple days action in the HSI the "Lightsaber" pattern. That's not really bullish over the long term:

And then there are our European friends, where buyers of some 10 year debt are paying to hold it:

Our 10 year Treasury yield is 1.9% and the Swiss is Negative? What sort of Bizarro investment world do we live in?? At this point we risk becoming immune to unprecedented financial goings-on. If you're new to trading, you've met markets at a very strange time in their life.

This post by Dan Nathan (@riskreversal) originally appeared on RiskReversal.com

#$SPY #$QQQ #^VIX #$EWH #$FXI

Tuesday’s Notable Options Activity: Emerging Breakout

Here is some generally directional, untied options activity that caught my eye during Tuesdays trading:

1. CBS – when stock was $61 a trader paid 2.45 for 45,000 June 62.50 calls to open. The calls break-even at $64.95, just below the 52 week high made last July at $65.24. The all time high in the stock is just below $69 from early 2014.

2. XLF - when the etf was 24.25 a trader sold to close 73,000 April 24.50 calls at 12 cents,these calls were apparently bought last week on March 31st when the stock was 24.33 for 21 cents (read here).

3. EEM – closed above its 200 day moving average (yellow line below) on Monday for the first time since late November, and this morning in the pre-market trading above the important $42 technical resistance level:

EEM 1yr chart from Bloomberg

Late int he afternoon when the etf was $41.65 a buyer paid .47 for 35,000 of the May 42.50 / 45 call spreads to open. This trade breaks-even at $42.97, with a max gain of up to 2.03 between $42.97 and $45.

4. QUNR - here is Bloomberg’s description of what this company does:

Qunar Cayman Islands Limited operates a search-based commerce platform. The Company provides travel product information from thousands of travel services providers in one location. Qunar Cayman Islands offers its services in China.

I really don’t know what any of that means, but it at-least a few investors in the last month have woken up to QUNR’s prospects for offering “travel product information” as the stock is up 50% in the last month, even with yesterday’s nearly 10% decline.

QUNR 1yr chart from Bloomberg

When the stock was $44.60 a trader rolled out a bullish view, selling to close 10,000 July 45 calls at $4.15 and bought 15,000 Oct 60 calls for 2.20 to open.

5. EPI - saw 5x average daily options volume yesterday yesterday, with the largest trade of the day in the most active strike. When the Indian etf was trading 23.27 a trader bought to open 20,000 April 23 puts for .20, 30,000 traded on the day. Earlier in the day it looked like there was a closing seller of 20,000 May 24 calls at 30 cents.

MorningWord 4/8/15: A Lack of Conviction (1)

Monday’s Notable Options Activity: $BBBY (1)

MorningWord 4/7/15: Waiting For Super Yield (1)

This post by Dan Nathan (@riskreversal) originally appeared on RiskReversal.com

#$EPI #$EEM #$QUNR #$CBS #$XLF

Apple: You Are Not Special. You’re Not a Beautiful and Unique Snowflake

“You are not special. You’re not a beautiful and unique snowflake. You’re the same decaying organic matter as everything else. We’re all part of the same compost heap. We’re all singing, all dancing crap of the world.” ― Chuck Palahniuk, Fight Club

Regular readers of RiskReversal know by now that I am a trader by training and a financial pundit by accident. I do enjoy doing commentary on TV and the web as I feel that most opinions espoused in the financial press/web are similar, often unoriginal group think. My appearances on TV and my commentary on RiskReversal allow me the opportunity to poke holes in traditional market wisdom. Someone needs to do it.

Last night on CNBC’s Fast Money program we had a discussion (here) about Apple (AAPL), its impending product launch, expected increase to its capital return program and fiscal Q2 earnings due April 27th. When the analyst was done with his thoughts, we do what we do on Fast Money, we “trade” it. One of my co-panelist, who also is prone to the non-consensus view and whom I respect very much, suggested that he has little edge in attempting to trade AAPL, and he sides with other pundits who have been long and strong the stock. Those who think you own AAPL, you don’t trade it.

That’s all fine and good, its been the right thing to do, especially when you have some of the savviest and most successful investors (Carl Icahn) on the planet who thinks the stock remains a great buy and could see it with a $1 trillion market cap (north of $200 in the stock) in the coming quarters/years. But here is the thing, that is now a consensus view. There is no risk in AAPL stock, just buy it, close your eyes and check back a year from now.

I take issue with the notion that AAPL is not a trading vehicle like any other stock. The mere mention that AAPL should be put in some sort of special place, with special rules that does not apply to other stocks in the market makes me cringe. It’s a stock. A stock of a company that is very familiar to most of us because we all have their products. That’s all. To think otherwise places way too much emphasis on one stock and attaches too much emotion. Emotions that, if widely held, (which they are) could lead to unforeseen outcomes for investors.

Here is the thing for you peeps at home trying to outperform the market. If you think it is an insurmountable task, then buy and index fund, or an index etf and ride the wave. If you like picking stocks but you are a buy and hold sort of gal, then mazel tov, that works too. But if you like reading services like RiskReversal, and tuning into programs like Fast Money on CNBC I suspect you like to trade.

There are all sorts of hobbies, some like to knit, some play poker and some run Iron Man races (like my boys Guy Adami & Brian Kelly). Others like to trade stocks.

Do I think trading stocks as a stay at home individual investor with limited resources is a sound career choice? I do not. But if it is the hobby you do outside your day job, why the hell not?

But I see no reason to put the largest market cap stock in the world, which also happens to be the one of the most widely traded stocks and options every day, in a special category where you just own it. It has been a tremendous trading vehicle on both the long and the short side for years now.

This post is not a suggestion to short the stock. But the idea of putting it into some special category is silly. If you have owned it for a long time then you have sizable profits. If the size of the position is becoming disproportionate to other holdings in your portfolio, and the risks are mounting, then you have options (pun intended). You could sell calls, or strangles against you stock and add yield, that would definitely fall into the category of trading your AAPL. You could collar your AAPL stock by selling a call and buying a put, limiting your potential upside, but defining your potential risk to the downside. That would also be trading your AAPL. You could do the unthinkable and sell your AAPL and lock in profits and replace that long exposure with long calls, call spreads, or short put spreads, defining your future risk.

You get the point.

Wednesday’s Notable Options Activity: $USO, $AMAT, $INVN, $RAD, $MU, $CBS, $JCP (1)

MorningWord 4/1/15: Watching $AAPL (1)

Tuesday’s Notable Options Activity: $AMAT, $LL, $PFE, $SWFT, $TAP (1)

This post by Dan Nathan (@riskreversal) originally appeared on RiskReversal.com

#$AAPL

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